Passenger duty will hit the low-cost airlines hard

The hike in the Government's air-passenger tax will drag down profits at Britain's top airlines, which have all already warned they will struggle to do much better than break even during the current aviation slump.

That is the view of broker Collins Stewart, which says easyJet is likely to be worst-hit as a tax hike has disproportionate effects on UK airlines competing to keep fares low.

Analyst Andrew Fitchie says easyJet earnings could be hit by up to 30% in the coming year, when analysts think the budget airline will already do well to make more than £20 million-£30 million.

The Chancellor yesterday replaced the current four rates of air-passenger duty with 16 different tariffs. Long-distance travellers and especially those travelling business class will be clobbered.

Within 18 months, passengers on the shortest flights out of the UK will see their tax rise by 20% to £12 - an average easyJet fare is just £46.

Business-class fares to the US will carry a duty of £120, up 50%. To the likes of China, India, South Africa and the Caribbean, the tax rises by nearly 90% to £150. On the longest-haul flights, to Australia and parts of South America, it has more than doubled from £80 to £170.

The Irish budget airline Ryanair said the hike in air-passenger duty will devastate UK tourism at a time of already falling visitor numbers.

Ian Godden, chief executive of Society of British Aerospace Companies, said taxing passengers on the length of the flight rather than taxing polluting older aircraft means the Chancellor will not reach his self-proclaimed environmental objectives.

"Sadly the Chancellor appears to have replaced one bad idea with another," he said.